Vikram Pandit, who was named chief executive of Citigroup on the eve of the financial crisis and led the bank through a bruising five-year stretch that included a $45bn federal rescue, abruptly stepped down on Tuesday.

Pandit, 55 years old, departed following a clash with the board over strategy and performance, according to senior bank executives and advisers. Citigroup, the nation's third-largest bank by assets, named Citigroup veteran Michael Corbat, 52, as Pandit's successor.

Pandit's resignation came after a series of missteps this year left some directors feeling that the company wasn't being managed effectively and that the board wasn't kept adequately informed, according to the people. Citigroup shares dropped 89% over Pandit's tenure, and the company was hit this year by a shareholder revolt over executive pay, by the Federal Reserve's rejection of its plan to buy back stock and by a $2.9bn write-down of a brokerage joint venture with Morgan Stanley.

The shake-up amounts to an extraordinary flexing of boardroom muscle at Citigroup, a company that until recently had a board stocked with directors handpicked by former chief executive Sanford Weill who rarely challenged management decisions.

The action raises questions about whether the sprawling Citigroup empire ultimately will be dramatically pared back or broken up, something Pandit opposed. When it was formed in 1998, Citigroup was envisaged as the prototype of the modern bank, a "financial supermarket" with tentacles in all areas of lending, securities and deposits. Its creation helped spark the end of the Depression-era Glass Steagall Act separating securities and banking.

But the bank's poor performance and unwieldy structure undermined that strategy even before the financial crisis. Under Pandit, Citigroup was forced to begin dismantling itself. The Pandit move comes amid calls for renewed limits on the links between commercial and investment banks - calls by, among others, Weill, architect of the merger that created the company.

The Pandit departure also leaves just two executives in charge of major US banks they led in the financial crisis: James Dimon at JP Morgan Chase and Lloyd Blankfein at Goldman Sachs.

Pandit's departure shocked analysts and investors, who just a day earlier had broadly applauded the company's third-quarter results, which offered no hint of management turmoil.

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Pandit presided over one of the most tumultuous and controversial periods in the 200-year history of Citigroup. He took over just as the first phase of the financial crisis had hobbled the company, then suffered the ignominy of repeated taxpayer bailouts and, more recently, managed to dramatically shrink what had become a sprawling and unwieldy global financial conglomerate.

But his ultimate progress wasn't enough to convince some sceptical regulators, shareholders and, most importantly, board members that he was the right person for the job.

His ouster was the culmination of months of growing board disenchantment with Pandit and his closest deputy, John Havens, president and chief operating officer, who earlier this year stormed out of a Citigroup board meeting. Havens also resigned on Tuesday.

Pandit is a native of India who earned a PhD in finance from Columbia University. He received $165m after a hedge fund he co-founded after leaving Morgan Stanley, Old Lane Partners, was purchased by Citigroup. Over his five years at Citigroup, he received approximately $56.5m in compensation, including retention awards. He was handpicked for the chief executive job by Robert Rubin, the former Treasury secretary, who in 2007 headed Citigroup's executive committee.

The board moved up to Monday a meeting in New York that had been set to take place Tuesday and Wednesday. Michael O'Neill, chairman since April, told Pandit afterward he should resign or face being fired, a person familiar with the discussion said.

Pandit quickly decided to resign, according to this person. O'Neill and two directors, Judith Rodin and Anthony Santomero, then fanned out to individually meet with top executives, telling them it was a mutual decision of the board and Pandit to part ways.

Two weeks earlier, O'Neill had called Corbat in London, where he was serving as chief executive for Europe, the Middle East and Africa, and asked him if he was ready to take the reins of the company, which had $1.94 trillion in assets at September 30. On Monday, Corbat was already in New York.

On a conference call on Tuesday with analysts, O'Neill rejected the notion that any one incident had prompted the change, which he attributed in part to budget planning for next year going on now.

"No strategic, regulatory or operational issue precipitated the resignation, nor is there another shoe to drop," O'Neill said. "There is no issue of conduct or ethics."

Corbat told analysts he planned to focus particular attention on two areas of high concern to investors: the continued wind-down of Citi Holdings - a unit set up during the financial crisis to dispose of unwanted assets - and tighter control of expenses. "We feel quite strongly that the strategy we have is the right one," Corbat said.

The change came as a shock to Citigroup employees. Pandit had made clear to executives and directors he intended to stay on for several more years.

During his reign, Citigroup repaid the government aid it received in 2008 and 2009 and sold off billions of dollars in unwanted assets. The bank returned to a profit in 2010 and earned more than $11bn last year after suffering deep losses during the financial crisis.

"When I came in, the job was to rebuild the company, rebuild confidence, rebuild capital," Pandit said in an interview on Tuesday with The Wall Street Journal. He said he focused on turning the company around from its near collapse during the financial crisis and didn't intend to do the job forever. "It was my decision," he said.

The company's market value declined sharply over Pandit's tenure, as it issued billions of shares to repay government aid, driving down its stock price.

On Tuesday, the shares rose 59 cents, or 1.6%, to $37.25.

"We respect Vikram's decision," O'Neill said. "Since his appointment at the start of the financial crisis until the present time, Vikram has restructured and recapitalised the company, strengthened our global franchise and refocused the business."

Citigroup bought the fledgling Old Lane hedge fund in 2007 as a means to bring Pandit and his team to the company. The fund was subsequently shut down following years of lacklustre performance. Pandit received $1 in compensation in 2010 after saying in 2009 he wouldn't take more until the bank had returned to profitability. His compensation last year was $14.9m, according to regulatory filings.

Citigroup posted aggregate net income of $21.67bn in 2010 and 2011, but the New York company continued to be overshadowed by rivals such as JP Morgan and Wells Fargo, and to draw criticism from investors and analysts for its uneven financial performance.

"The board is doing what it's supposed to do," said former Federal Deposit Insurance Corp. chairman Sheila Bair, now a senior adviser with the Pew Charitable Trusts. "The company's bad performance and an underperforming CEO - those are the kinds of situation that lead to a change."

Bair in the past unsuccessfully pushed for Pandit's removal, saying he lacked the expertise to run a bank as big and complex as Citigroup.

The three US banking regulators - the Fed, the FDIC and the Office of the Comptroller of the Currency within the Treasury Department - were notified of Pandit's departure on Monday, according to people familiar with the matter. In at least one case, top officials received a phone call from O'Neill.

A close adviser persuaded Pandit about a year and a half ago to focus on building relationships with Fed officials and other regulators, and recently he had been spending about one day a month in the capital. He was so confident in his relationship with Fed chairman Ben Bernanke that he sometimes told colleagues, "Ben said this."

That Pandit led the board to believe he had a close relationship with regulators was a reason directors were upset over Pandit's failure to anticipate the Fed's rejection of a plan to buy back shares following this spring's so-called stress test, according to a person familiar with the bank.

Citigroup has just one board member who predates the financial crisis. That statistic, as much as any, helps explain why directors were able to engineer Tuesday's abrupt change at the top.

After the financial crisis, US regulators pressed Citigroup to appoint directors with more commercial-banking expertise and fewer ties to Weill, the architect of a landmark 1998 merger that loaded the company with what proved an unwieldy combination of businesses. Thirteen directors left and 10 joined as part of that boardroom purge.

Those leaving included such prominent figures as Rubin, former Alcoa chief executive Alain Belda and former AT&T chief executive Michael Armstrong, as well as a former director of the Central Intelligence Agency. Gone as well were former chief executives of Xerox, Chevron and Dow Chemical. The final break from the Weill era came last spring when former Time Warner chairman Richard Parsons stepped down as chairman. His presence on the board dated to 1996.

Many of the new directors appointed to address the concerns of regulators arrived with an open mind about Citi's strategy and leadership. The newcomers included two former regulators - Diana Taylor, a former superintendent for the New York State Banking Department, and Santomero, former president of the Federal Reserve Bank of Philadelphia - as well as O'Neill, a banking veteran who was known for recommending tough medicine in his past jobs.

Before joining the Citigroup board, O'Neill interviewed for the top job at Bank of America and recommended that company be split up as a way of becoming simpler and less prone to volatility, said people close to O'Neill. Bank of America instead chose Brian Moynihan.

O'Neill became Citigroup chairman in April and immediately began taking a closer interest in operations, in contrast to Parsons' focus on the job's diplomatic aspects.

Some of the directors who joined after the financial crisis clashed with Pandit over strategic priorities, resource allocation, selection of new directors, regulatory cooperation and executives' pay packages, said people familiar with the situation. Those directors included Taylor and William Thompson, a former chief executive of pension fund Pacific Investment Management who also joined in 2009. Neither could be reached for comment.

The one board holdout from the precrisis era is Rodin, president of the Rockefeller Foundation.

Messrs. O'Neill and Corbat know one another from when Corbat was running Citi Holdings, the unit disposing of unwanted assets, and O'Neill was playing a role as intermediary with US regulators. The two got to know each other on trips to Washington, said a senior Citigroup executive.

Corbat held two conference calls Tuesday for groups of senior management. Chief risk officer Brian Leach, who like Pandit and Havens had worked at Morgan Stanley, told a group of his staff Tuesday that he won't be leaving Citigroup, despite some speculation to the contrary, the senior executive said. John Gerspach, chief financial officer, has also said he plans to remain with the company.

O'Neill on Monday evening approached senior Citigroup executives, including investment-banking boss James Forese and global consumer banking head Manuel Medina-Mora, to discuss the possibility of one of them taking over Havens' chief operating officer job, according to people familiar with the talk. Having a seasoned executive in a No. 2 role beneath Corbat was attractive to the board because of the new chief executive's relative managerial inexperience.

It isn't clear that Forese or others want the job, partly because of concerns that such a role would subject them to much greater regulatory scrutiny, the people familiar with the approach to them said. A number of senior Citigroup executives who had hopes of one day succeeding Pandit say they are now weighing whether they want to remain at the company.

A handful of top Citigroup executives got phone calls early Tuesday morning informing them of Pandit's resignation. The rest of the senior team was invited to join a 7:45 am EDT conference call. They didn't know what the topic was. Many dialled in from their homes or their cellphones as they commuted to work.

On the call, Pandit said he would be leaving.

He outlined what he would say in a subsequent internal memo: "It's been a wonderful experience, but it's time for a transition in leadership." The call lasted about 15 minutes. When it ended, said a person who was on the call, "people were speechless."